How To: Consolidated Purchasing

Consolidated purchasing refers to the practice of bundling projects, products or services that could otherwise be purchased separately into a single procurement, effectively making the procurement process more efficient. Consolidated purchasing allows you to consolidate procurement lines with the same supplier into a single purchase order, removing a substantial amount of administrative work when preparing purchase orders. This manner of purchasing is usually employed when different departments in an organisation are purchasing similar items.

For government suppliers, consolidated purchasing can potentially reduce the number of projects open for tender, but the pay-out for the projects is no less substantive. Instead, consolidated purchasing increases the priority for vendors to have access to actionable insights on upcoming projects, way before the details of the tender or request-for-proposal (RFP) is published. In the case of consolidated purchasing, the contract awarded to a supplier may have stipulations that require the supplier to invoice each department that put forward a purchase requisition separately, or have the inspection authority advance the approved invoices to the department responsible for payment.

Benefitting from a consolidated purchasing system

There are many benefits to be had when it comes to consolidated purchasing. One of the biggest benefits of consolidated purchasing is in having a global view of the supply chain and total visibility across all suppliers from a top level. Having the big picture on consolidated purchases from individual suppliers as well as suppliers within groups or holding companies means that company accounts can be better managed and business expenditure can be consolidated. Consolidated purchasing also offers centralised deals and contracts with major suppliers, and the ability to measure company performance. With so many benefits promised, investing in a consolidated purchasing system is a good idea.

When preparing purchase orders, procurement teams are susceptible to mistakes such purchasing insufficient amounts of a particular product, pricing inconsistencies and duplicate orders, which are often overlooked. With a consolidated purchasing system, purchase orders are streamlined and computations are automated, leaving less room for errors. Also, when an organisation does consolidated purchasing, there is more communication between management and staff members, which helps to foster engagement between colleagues.

Besides being used to order products or services, consolidated purchasing systems can help your team make projections, track inventory, consolidate vendor information and manage special orders and international transactions. It can also provide all the necessary data to prepare performance charts and cost analysis reports, which are required by management when making decisions pertaining to the company budget. The consolidated purchasing system is capable of processing huge amounts of data within a short period of time, giving you significant savings in terms of time and resources when preparing reports for upper management. Consolidated purchasing can be a complicated process, but having a consolidated purchasing system systematically simplifies the procurement process.

Optimising your consolidated purchasing power

Let’s use the example of copying services in an organisation. Copying services are an essential part of daily business processes and in a large organisation, each floor usually has its own copier machine. The services provided by the supplier of the copying services may include selling or leasing the copier machine, preparing service contracts, providing the necessary equipment such as toners and drums, as well as after-sales and repair services. The cost of these services can take a big chunk out of the company budget, and this is where your consolidated purchasing power can come in handy.

When negotiating the service contract with a potential supplier of copying services, it’s important to structure your contract such that a single contract covers copying services for the whole organisation, instead of having one service contract per floor. You should also negotiate the service contract as a whole, instead of having each department negotiate their own separate contracts. This helps to streamline the terms and conditions of the service contract so that everyone is on the same page. Preferably, try to enter into a contract with one single vendor for the whole organisation as this would be considered bulk purchasing, which is more often than not, cost effective.

Additionally, it’s important to include protection clauses within the contract such as an option for recurring payment, as well as payment on the condition that the services delivered are satisfactory. These conditions ensure that the supplier consistently delivers top notch services, and provides the organisation with value for money. In the case of copying services, if a copier machine provided by the supplier is faulty or making poor copies, the organisation has the right to withhold payment until the copier is repaired. This would not be possible had the contract been structured in such a way that payment for the service provided is a once-off. It makes perfect sense to select the recurring payment option: With every faulty copier that is yet to be serviced, the supplier would not be paid. If the supplier has contracts to supply copier services to several companies, who would the supplier prioritise when carrying out repair work? Naturally, it wouldn’t be the company that paid a flat fee upfront!

All these little details in the service contract can make all the difference when it comes to cost savings for the company. Using your consolidated purchasing power effectively can mean significant savings for your company, which can then be put to good use in other areas of the business. Payment for poor services adds up to a huge amount in the long run, so drafting up a contract that harnesses the power of consolidated purchasing is a prudent way of conducting business. Essentially, the total cost of your procurement should reflect optimised consolidated purchasing power, securing big savings, less administrative work for the procurement team, and reliable copying services for the organisation.

ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.